(FORTUNE Magazine) – FOR GEORGE BUSH, this is the moment to savor. With the international coalition that he masterfully forged having achieved the most stunning military victory since World War II, America's pride is back. And so is a lot of confidence. Oil prices have plummeted. The President's approval ratings have hit 91% -- higher even than after Harry S Truman accepted Germany's unconditional surrender in 1945. A man shaped by World War II, Bush also knows how fleeting such support can be. British Prime Minister Winston Churchill was unceremoniously dumped by voters after World War II. Truman barely squeaked to reelection in 1948, and he left office four years later in a hail of criticism. Their nemesis: domestic economic problems, and in Truman's case, a far less popular foreign entanglement in Korea. To avoid that fate, this President will have to manage the peace as deftly as he has managed the war. Bush will be able to draw on an enormous reservoir of trust and respect built during the crisis among world leaders from London to Cairo, Tel Aviv to Moscow. Says one European ambassador: ''There is no question that Bush's leadership in the Gulf has enhanced his power on the world stage. America is again clearly the major world player.'' His success in the Gulf should also enhance Bush's power at home and help him fend off costly new Democratic social initiatives. But the President will find it much tougher to translate his newfound prestige and popularity into domestic legislative triumphs. Pointing to the Democrats' edge in Congress, a top Republican strategist quips: ''Bush was on the move in the desert sands. But even with his newfound strength, he's still defending a bunker position on Capitol Hill.'' In any event, Bush sees his first order of business as acting as a ''catalyst'' to build a new security arrangement in the Middle East. To keep the peace, the President will likely turn to an all-Arab force -- probably led by the Saudis and possibly supervised by the U.N. The U.S. will maintain a significant naval presence in the region and probably leave a cache of supplies and aircraft. But Bush has no intention of keeping ground troops there indefinitely. Longer term, Bush realizes, peace will depend on the healing of ancient conflicts between Arabs and Israelis, and the Middle East's haves and have- nots. But he considers a much ballyhooed international conference to address such issues premature. Says a top aide: ''It's a nonstarter.'' Instead the White House is considering several alternatives, including state-to-state talks between Israel and its Arab neighbors. Another possibility: talks between the Israelis and the Palestinians -- but only if they replace Yasser Arafat and his PLO henchmen, who backed Saddam, with new leaders. Navigating these difficult diplomatic straits successfully, as this pragmatic President is acutely aware, is like crossing one of Saddam's minefields. ''We aim to remain realistic about the Middle East,'' says a senior White House adviser. ''After World War II, everyone except the U.S. was in terrible shape, and we could dictate terms and expect others to salute. This is not like that. Saudi Arabia, Egypt, and Turkey are all stronger now than they were before the war. So what will emerge is a process of consultation with the Arabs and our other allies.'' Bush's advisers are slightly more upbeat about prospects for controlling arms sales to the Third World. What concentrated their minds, of course, was the threat that Saddam might have used chemical or biological means, or even a crude nuclear device in his fight to keep Kuwait. The U.S. plans to tighten its own controls on exports of weapons and key commercial products, such as computers, that can be put to military use. Most important, Soviet diplomats have indicated a new willingness to join expanded international agreements that would police the spread of missiles and chemical weapons. That promise is clouded by the threat of a breakdown in U.S.-Soviet negotiations on reducing their nuclear forces. Recently, Administration officials claim, Soviet military leaders have begun ignoring provisions of an agreement that Mikhail Gorbachev signed last November in Geneva to cut conventional forces in Europe. ''There is still time to fix things,'' says a top Bush adviser on Soviet issues. ''But unless that deal gets resolved, no one here is prepared to sign a new strategic arms treaty.'' WITH ARMS CONTROL and his new world order hanging in the balance, look for Bush to continue to seek ways to nurture -- or at least sustain -- his relationship with the Soviet President. When Baltic-American leaders pressed him recently for a stronger denunciation of Gorbachev's crackdown in the Baltics, Bush reportedly countered with what he saw as an even more worrisome prospect: ''What will you say if two months from now the Soviet military is running the country?'' That's why, even if an arms-control deal is not forthcoming, another superpower summit may still take place. Says one Bush aide: ''There might be other good reasons for talking.'' Among them: giving Gorbachev a much needed domestic political boost (see page 64). On the international economic front, victory in the Gulf war could give the U.S. a little more leverage in the troubled GATT talks aimed at liberalizing world trade. Says Robert Hormats, vice chairman of Goldman Sachs International and a former U.S. trade negotiator: ''The Europeans and Japanese may feel they owe us one after our military leadership in the Gulf. The European Community is already rethinking its agriculture policy, the major sticking point in the current round.'' More certain is the fate of Bush's latest bid to lower the capital gains tax. It has been swiftly killed by House Ways and Means Chairman Dan Rostenkowski's thinly veiled threat to tie any such cut to legislation raising income tax rates. The White House's bank reform proposal is also in trouble. While Democrats liked his call for interstate branching, they will continue to resist other major provisions, such as tighter limits on deposit insurance and permission for well-capitalized banks to expand into other financial services. Says banking consultant Bert Ely: ''Sweeping bank reform is dead this year.'' Paradoxically, the rapid end to the military conflict with Iraq may well make it tougher for Bush and Congress to agree upon a strong new energy policy. With crude prices now below where they were on August 2, complacency could make a quick comeback (see page 50). Bush and his team seem untroubled by the prospect of a string of domestic stalemates. Aides feel they already have a fine list of legislative accomplishments on which to run -- a five-year deficit reduction plan and bills on clean air, child care, immigration, and crime that already have been enacted into law. That's why Chief of Staff John Sununu has indicated he would be content if Congress simply stayed home for the next two years. Most significant, Bush strategists point out, recent drops in oil prices and interest rates, plus a postwar revival of consumer and business confidence, should have the economy humming again by 1992. If growth soon revives -- as many economists, including FORTUNE's, predict % -- political analysts expect Bush to be a shoo-in for reelection in 1992. Says the American Enterprise Institute's Norman Ornstein: ''The key is the economy. If that's looking good, it's almost inconceivable that voters would turn out the man who just delivered America's greatest foreign triumph in 45 years.'' For now, the Democratic presidential hopefuls standing wistfully in the wings are reduced to hoping that the diva slips. That's not impossible. Between August, when Saddam invaded Kuwait, and October, when the President broke his no-new-tax pledge, Bush's approval ratings dropped from 80% to 48%. After a poor GOP showing in the congressional elections, Republican conservatives were talking openly about launching a primary challenge in 1992. Says political analyst Kevin Phillips: ''Bush can't keep mounting invasions to keep his ratings up. Sooner or later, he's got to face more troublesome domestic issues.'' BUT WHAT Democrat will dare to lead the charge against him? Liberals like New York Governor Mario Cuomo or House Majority Leader Richard Gephardt don't look like strong challengers unless the recession lingers -- and deepens. Otherwise, the best bet may be moderate Texas Senator Lloyd Bentsen, who ran a strong vice presidential race in 1988, or a relative newcomer to the national stage such as Tennessee Senator Al Gore, one of the few who broke ranks with the Democrats to support Bush's Gulf policy. A longshot, suggested by Al From, president of the Democratic Leadership Council, is that 1992 could be ''the year the party nominates its first black'' -- not Jesse Jackson, but a moderate like Virginia Governor Doug Wilder. Even if Bush glides to reelection, his coattails are not likely to prove as long as Texas Senator Phil Gramm and other GOP optimists are predicting. Says Norman Ornstein: ''In the 1984 elections, Ronald Reagan carried 49 states, and it did nothing for his party in Congress. If people feel good about their President, chances are they feel good about their Congressman.'' And right now, good is just how most Americans feel.